A Take on the coin market.

I don't think there are many investors who place there hopes in coins as a PRIMARY investment. I think there are many who have added both coins and bullion as part of an investment portfolio. I understand that aspect of investment. From my perspective investing is the polar opposite of collecting.

I was (and still am) so completely excited about my purchase of an 1834 Bust Half Dollar about a year ago (ebay). For me, the nearly $100 purchase was a HUGE departure from our usual family economic abilities. My wife and I decided to own it, and were lucky to have won it. Thrilled each time I hold it, is an understatement. The history it reflects is just breathtaking. This is the part that many (maybe most) investors will never experience. And, why I think there will always be a numismatic market for, even common ($100), coin treasures. Jack

 

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The population has little to do with the price level. I'll agree it matters somewhat in the US because of the scale of collecting but it isn't one of the primary factors, especially when the growth is disproportionately going to be in minorities who have a much lower historical propensity to collect and a much higher percentage will have little to zero affinity for US coins anyway.

Presumably like most others here and on other coin forums, you probably also have a much rosier economic outlook than I do longer term. I don't think the US economy is necessarily going to "collapse" but most people are worse off now than in 1999 and this is despite the loosest financial conditions ever which aren't going to last "forever". Even under a continuation of current economic conditions, most people are likely to be worse off than now.

Outside of maybe bullion substitutes like MS Morgan dollars which benefit directly from higher metal prices, I don't remotely see it happening to $50 to $150 coins. Given how hugely inflated the US price level is generally, about the only way higher prices after inflation seems remotely possible is if the future collector base has a much higher proportion of the affluent population. Even if this happens (and I don't believe it will), the "rich" aren't going to be buying "collector" coins which is exactly what $50 to $150 coins represent.

There are so many of these coins, the prospects that the future collector base will increase enough to absorb them at higher inflation adjusted prices isn't that great. The visible supply is likely a fraction of what actually exists.

 

Agreed - as I read the first part of your post it made me think of classic silver commemoratives. As a whole those coins were priced really high and now...not.

 

What grade is it...show it off.

 

Classic silver commemoratives were inflated by the late 1980's TPG bubble. There were other series which were also inflated though to my knowledge, these have not lost nearly as much value. My recollection is it included some of the Barber coinage, Morgan dollars, classic gold and even 3CN.

The coins which are the most inflated now are "scarcer" in the sense that the existing population is now better known. From a collecting standpoint though, the financial risk is that there is no substantive difference most of the time between the highest grades and those one or a few points lower.

Collectors have been conditioned to believe that the "best" quality will always outperform financially longer term. I wouldn't count on it. Not where existing price spreads are already inflated and the most compelling thing about them is frequently if not usually the label on the holder.

 

We have reliable auction results going back a century-plus indicating that even then collectors were wiling to "make markets" for the right coin. We call it the "King of Hobbies" for reasons dating back eight hundred years.

But don't conflate the bullion/junk market with "numismatics." The former will implode as soon as superconducting technology renders industrial uses of silver and gold obsolete - I suspect that will happen in my lifetime. All the latter needs is a few people in each generation like jackhd - whose love for the coins themselves is plain - and the inevitable economic development of third-world economies into first-world economies, opening up literal billions of new collector candidates.

This will lead to pressure on world coin prices (a point relevant to another thread) making US coin prices more attractive.

I'm sorry, I refuse to be dissuaded from optimism. That's how optimism works.

 

Are you saying that the numismatic premiums on the "bullion/junk" markets will disappear? Or the use of these metals as a store of value?

If the former, I can see that. If the latter, not in my lifetime because for gold at least, its value has nothing to do with its supposed utility because if it did, it would not be near its most relatively overpriced point in history.

As for foreign countries, apparently you believe that affluence is the primary cause of collecting. It is culture, not how much money someone has. Absent a culture change, there is zero reason to believe that societies that have not collected at all or minimally will do so in much larger numbers (either proportionately or absolutely) just because they can afford it. Those who think otherwise have an inflated opinion of the appeal of the hobby to non-collectors who have no interest in it other than financial. There is no evidence for this position, anywhere. Affluence is a necessary precondition but in and of itself not remotely sufficient.

To give you a personal example, my father is from Bolivia through German and Spanish ancestry. There is no evidence of collecting in the country at all whether by Europeans or natives, the latter whom never even struck their own coins, ever. The closest to a coin shop I ever saw was in 1975, a plateria. Since returning regularly in 1997, I see coins in markets but its all junk for tourists. It isn't on their radar.

The population is about 12 million with probably three million households or somewhat more. There must be at least 30,000 with a liquid net worth of $1MM USD or near it and a multiple with $100k. The supply of better "collector" coins and "investment" material over five centuries might be worth what, $10MM or somewhat more, at most?

The whole point of this lengthy post is that there is plenty of "wealth" available and no shortage of affluent people RIGHT NOW to collect AND pay much higher prices given the pitiful supply to be bought. More wealth will make zero difference to people who aren't interested and the only thing that will do so is a culture change. For the individual prospective collector, there is little or nothing to buy locally and also no profit motive because no local market exists to liquidate.

You can substitute any other country of your choice for Bolivia where there is a limited or no history of collecting and the result is going to be almost exactly the same. The observable evidence better supports that for MOST countries, its going to be buyer's in developed countries with a cultural affinity (such as Mexican Americans buying Mexico coins in the US) who will move the price level.

As for as the competitiveness of US material, an increase in world coin prices will help but except in isolation, there is no reason to believe that the better world coins will approach parity with the US price level where it will matter to anyone reading this post. The US price level is not normal, it is outliers.

Its difficult to cover everything but I have a lot more to add if you or anyone else is interested.

 

Duplicate

 

Particularly silver - over half of silver production goes to industry - but ~12% of gold consumption is industrial as well. You bet good scientists are working overtime to replace them with something less expensive. What happens when those markets disappear?

Gold probably remains a somewhat-acceptable hedge even with the market increased by 10% (did you know that gold mining is the single most polluting activity on the planet?), but silver will drop through the floor.

 

I believe gold will - eventually - lose relative value and maybe a lot because it is historically overpriced today. If a substitute is found during a long term downtrend, I don't necessarily believe it will be possible to attribute any of the price decline to it because "fundamentals" are as often as not simply rationalizations for prior price action.

With silver, I am less certain of it. It doesn't have its prior monetary role and to date, I suspect that if its industrial demand has declined recently (as I believe it has at least somewhat), its probably been made up substantially by retail buying. Tens of millions of ASE have been bought by stackers.

In the upcoming financial crisis that I see "eventually", I expect a lot of selling of the physical (as opposed to "paper") metal, both of them but especially silver. Some of it may be due to trend followers getting out but even if not, predominantly by "weak hands" who MUST sell to raise cash.

After that though, even with limited industry uses, I don't see it being abandoned because fiat money losing its value is an even safer bet.

 

What I do is buy and flip coins so I can get these $50-150 (or more) coins for $0-50 (or less ). With this strategy, I can't lose. Now, occasionally I pay more than that for a much nicer coin, but usually the coin justifies the price (worth 50+% more than what I pay for it).

Such is the joy of cherrypicking, buying the coin and not the slab, gambling off of bad photos, etc.

 

You might be right, @SuperDave but if memory serves me, back in the 1980s many people were predicting a glut in silver with a corresponding drop in price due to digital photography. I believe the price at the time was in the sub $5 range. They were right about digital photography but not so right about price. Historically, silver has been a store of value, and I for one believe this will continue regardless of superconductor technology.

 

I do as well. There is also a difference between gold and silver which I forgot to mention in my last post.

The annual mining supply for gold is minimal versus the volume held as "investment", in the range of maybe one or two percent at most I believe. If industrial usage is 12% of annual mining supply currently, it's not even a rounding error.

With silver, annual mining supply is a much higher proportion by an order of magnitude. Advocates have used this in the past as a supposed reason why it should or will outperform gold.

In the 1980's, I remember there was a silver mining supply deficit which lasted for years, maybe into the 1990's. It wasn't enough to make the price rise either. The fact is, the total value of both annual mining supply and above ground stock is such a pittance compared to the value of financial instruments that "investment" buying can easily negate it under the right circumstances.

Neither a production surplus or a deficit prevent higher or lower prices, though I think it does make some difference at the margin.

 

Someone made a play on them around that time, whether or not it was successful no idea but once they left a lot obviously came back to market and prices haven't recovered since. Then again it was also just a weird time as common Morgans haven't recovered either.

 

I was collecting then but not paying close attention. My recollection is that first, buyers over estimated the scarcity of many US coins now known to be common. This was 1989 but perhaps it is understandable since the population reports were new and collectors might have been basing it on inaccurate perception from years past.

Second, Merrill Lynch and Kidder Peabody created MLP's and sold fractional interests to "investors". Other speculators front ran this trade and left them as bag holders. I don't know the coins involved but must have at least included Morgans and generic type US gold.

There were (and maybe still are) telemarketing firms who might have sold these coins. I remember in the mid 80's subscribing to a worthless financial newsletter (Capital Gains) which was actually a marketing shill for bullion and coins. This was pre-TPG but the coins were absurdly overpriced.

 

I think the biggest threat to numismatics is incredibly well-crafted forgeries. I recently bought a 1922 plain Lincoln cent that was advertised as a facsimile, so it's not like I was fooled... but if the forgers are able to create such well-crafted coins of mid-range value, I fear for the future of the hobby.

 

This coin is probably one of the most profitable to fake. It is expensive enough but concurrently common enough where a relatively large number can potentially be sold making it a worthwhile financial return on the counterfeiter's investment.

 

I'm sure that was part of it. Internet and the tools we have today weren't available or anywhere near as common back then. After decades of dealer/seller hype on things with no real way for the average collector to verify it the first few waves of the mid upper level grades were probably very easy to market as a rarity.